Adjudication Award Subject to Set-Off in Corporate Insolvency

A recent case involving a builder who became insolvent whilst working on a couple's property led to an appearance in the High Court.

The building company entered into a company voluntary arrangement (CVA). The terms of the CVA bound the administrators to set off debts to and from those having dealings with the insolvent company before the CVA was approved, so that, in effect, the net debtor or creditor position was established.

The work the builder had done for the couple was the subject of an adjudication decision and the adjudicator ruled that the couple should pay a sum to the company. The couple raised a counterclaim on the basis of alleged defects in the work carried out by the company, which made them a creditor under the CVA.

As a creditor under the CVA, the couple could face an abatement of the amount they could claim for the defective work. They therefore argued that the adjudicator's decision should not be enforced against them but that their counterclaim should be decided and set off against the sum they had to pay.

The company applied for the adjudicator's decision to be enforced against the couple. That claim failed. The Court accepted that the counterclaim had to be considered for set-off against the debt due under the adjudication decision and this could not, therefore, be enforced against the couple.

If you are considering having work done to your property, the inclusion of appropriate wording in your construction contract can protect you in the event of the insolvency of the contractor.

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